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Top-Down & Bottom-Up Estimating Techniques in Project Management

Top-Down & Bottom-Up Estimating Techniques in Project Management
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  • 0:03 Estimating in Project…
  • 1:25 Top-Down Estimating Technique
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Lesson Transcript
Instructor: Olga Bugajenko

Olga is a registered PRINCE2 Practitioner and has a master's degree in project management.

Before you begin a project - large or small - it is crucial to have an accurate estimate of its cost and duration. We'll review two main estimating approaches, top-down and bottom-up, and discuss when you should use each one.

Estimating in Project Management

A project usually begins with an idea. For example, the management team at a high-street shoe seller decides to lower production costs by building their own factory. How this will be accomplished, how long it will take, and how much will it cost is unknown from the outset. However, in order to make a decision about whether the project is worth implementing, these questions need to be answered.

The process of predicting the cost and time needed to deliver project products is known as estimating. Reliable estimating is crucial for making informed decisions, evaluating the viability of a project, understanding project resource requirements, creating work schedules, and monitoring the project performance.

When evaluating the viability of a new factory, you will need to take into consideration the cost and availability of land, the cost and duration of the actual construction work, and any additional investments into logistics.

As estimates are created before the actual work is carried out, they are inevitably inaccurate. Naturally, higher accuracy requires more effort and money being spent on the estimating itself, so a trade-off between costs and accuracy must be reached.

For a huge project like a new factory, where the investment under consideration is significant, additional money paid to the team evaluating the proposal is justified. Estimates for smaller projects may only take a few hours.

Top-Down Estimating Technique

Top-down estimating is carried out by senior management based on the general information available about the project. The estimating process can also be supported by experience or input from an expert.

For example, when estimating the cost of constructing a factory, project managers may rely on the historical information about how much competitors have paid for a similar capacity shoe producing factory, rather than take into consideration the unique setting of a particular project. While this is a quick and cost-efficient way of estimating, it ignores the technical details of the project. Therefore, it can yield inaccurate results.

Top-down estimating techniques should be used in highly uncertain conditions: the scope of the project is not yet clear, the team is making strategic decisions, or for small projects. The most popular methods for top-down estimating include:

  • Consensus method - instead of assigning the estimating job to a single person, this method relies on the experience of several senior managers to improve the accuracy of estimates.

  • Ratio method - this ratio relies on a fundamental project characteristic, such as size in square meters or the number of features in the software, and the cost per meter or feature to estimate the total project cost and duration.

  • Apportion method - this method calculates the cost of individual tasks as a percentage of the total project cost.

  • Function points - similar to the ratio method, this method relies on the project characteristics, but takes into consideration more than one parameter and allows weighting each component differently.

  • Learning curves - useful for repeating tasks and projects, this method accounts for the fact that each time an activity is repeated, it will take less time.

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